Confucianism and the costs of high leverage

Shihao Wang, Mengting Guo, Keyun Wang, Umer Sahil Maqsood and Qian Li

The European Journal of Finance, 2025, vol. 31, issue 10, 1313-1337

Abstract: In this paper, we investigate the influence of Confucianism on the product market performance of enterprises with high leverage. A sample including 2608 Chinese listed enterprises was gathered throughout the period spanning from 2007 to 2020, encompassing regions characterized by varying degrees of Confucianism influence. We first find that enterprises operating in places characterized by a high prevalence of Confucianism exhibit a notably diminished adverse impact of high leverage on sales growth. Our research also shows that highly leveraged companies can reap the benefits of Confucianism by influencing their customers, competitors, employes, and suppliers to behave more positively. Firms with low profitability, no political connections, provincial headquarters with weak legal or incomplete institutional environments, and regions with less exposure to overseas cultures benefit more from Confucianism's moderating effect on high leverage costs. In sum, our results indicate that Confucianism reduces the negative impact of high leverage.

Date: 2025
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DOI: 10.1080/1351847X.2025.2461722

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